Paying off Loans early is Not ‘THE RESPITE’ for Students in the UK from Rising Interest Rates

Paying off loans early shows responsible nature of students’ fraternity, but experts in financial markets do not give thumbs up to this kind of behaviour. Rising interest rates can trigger the panic, but then looking on the contrary side, overpaying out rightly means, one is throwing the money away for nothing better. Controversial rates of interest are not only the trigger switch; students are also often driven by something known as the ‘Prevailing Market Sentiments’.

Student Loans Lead the Students into Debt Spiralling

Most students are into a panic situation soon after they come to understand that their debts are into death spiral, after the interest rates have been added to the principal loan amount. The overall size of loan is increased massively, and this is where critical situation begins to build up. Many times, students do not have any plan, let alone the contingency plan for repaying the debts they hold against the loan. And with the rising interest rates, everything gets into a serious turmoil.

The idea moving behind among students is that interest rates are reduced considerably. Does overpaying lower the interest rates? One has to be judgemental out here. Consider here a situation where the graduate is already absorbed in some kind of high-paid employment, and the employment is stable. In this kind of situation, overpaying is a good idea altogether.

Let’s understand the whole concept with practical figures.   

Graduating individual with wages approximating £36,000 a year is likely to repay around £40,500 out from the £55,000 total student loan in the time span of 30 years, with the most current (July 2017 –August 2017) repayment rates prevailing in the UK market. The rest of debt is cleared off after timeframe of 30 years. However, if the same graduating individual graduate reduces the total £55,000 balance straight to £45,000 against an overpayment of £10,000, he is still repaying the same amount of student loan spread over 30 years. The idea of overpayment has no point here in real sense.

In the loan market of the UK, student loans are acknowledged as ‘Political Hot Potato,’ for reasons known to many. And for the graduating students, the term student loans are nothing but wrong name, over popularised for the heck of losing money. It would be a good thing if ‘Student Loans’ had a more appropriate name - ‘Graduate Contribution System’. Changing the name would help student fraternity to identify the loan with respect to their needs and more importantly better financial decisions are made.

Why Aggressive Overpayment is Not the Logical Recourse

There is a more logical reasoning that works behind overpayments and it is very important to understand then lament later on.

Reasoning#1

If You Have Flexible Debts, Pay them off First

Some student loan lenders provide benefits such as the income-based repayment plans or even refinancing. If this is the scenario, you graduate can adjust the loan payments in the manner such that financial difficulties are reduced down to a naught. You do not have to keep the flexible debts piling up for the torture, if not at the hands of ‘The Satan’.

Reasoning#2

Do You Have Funds Saved for Emergency Situations?

An emergency fund is your financial vanguard in situations not in your control. Guess the situations – If car breaks down; Need for Pet Surgery; Family Matter Arises; Home Repairs. These situations are not affordable and one ends up into vicious debts. In span of few years this debt is going to rise and you will be struggling.  If your parents have not done it for you, be the self starter. Open a bank account, and start saving for the emergency rather than running to overpay the student loan.

Reasoning#3

Are there Any Large Expenses to Come Your Way?

It is not necessary to carry forward your debts for the sake of nothing. But, in situation where your miscellaneous expenses outgrow, you need to give a backseat to the student loans. Appearance of sudden expenses in the form of wedding, or a surgery, or planning a yearlong trip to exotic destination, can throttle your financial condition, especially, when you have limited funds, and no one to ask from.

 Saving and paying extra on your student loans is not the sane and wishful thing that you are going to do. You have to be honest with yourself to list your priorities. What should come first, and what should not! Do you intend to overpay the loan with the purpose of lowering the interest rates? Or do you want to have sufficient savings to cope large expenses?

 

Planning for Your Retirement? Are you Judging the Interest Rates in a Fair Way

If the current interest rates running on your student loans are low (say it is settled between 2% and 3.5%), you may feel happy. Theoretically it seems a bit correct, but you have long timeframe to repay the loan.  If you are planning your retirement, you have to start saving money for it. The sooner you begin to save for retirement, more is your balance. In this kind of situation, you can still consider of overpaying the debts.

Play the Game in Right Way

 Good or bad, you know what has to be done, and what would really improve your financial situation. Remember, if your savings are dried up; start building up one, instead of thinking of overpayments. In case, you have high interest debts running on your current student loan, good strategy is to pay it off without stretching to the last days. Your financial goals are more critical than making overpayments. Even with consistent repayments spread over regular period of time will make your situation better before the borrower.

Gaining knowledge through formal education is self development, but managing the loan and keeping it under control, is where you need to start looking for a different approach. 

Similar Articles

Don’t Let Unemployment Make You Insane: Save Yourself with These Tips

Just lost the job that you really loved? You must be in denial and feeling stressed, but you need to tackle them in order to make a good move. 

car loans for bad credit history

You may have heard that it is not easy to get approval for a car loan if you have poor credit. This comes as a shock to those who are wishing to purchase the car of their dreams but have a credit history which does not allow them to do so. To all those people who have their hopes hanging by a thread, here is how you can get approved even with bad credit history.

auto financing options

Finding the perfect car is a dream come true for many. However, having poor credit can sometimes burst that bubble making it almost impossible to obtain your next dream car. Nonetheless, every problem has a solution and to achieve your goal of buying your dream car without a credit history, search for auto financing solutions online.

Drive Home in The Car of Your Dreams: Best Auto Loans in 2019

Going to be financing a car this year? Looking for the best of the best auto loans in 2019? Here is the ultimate guide.

Steps After You Are Declined for A Personal Loan

Do you feel like there is no hope because your lender said you did not qualify? If you are ready to give up when declined for a personal loan, don't. It may seem like all is lost, but the fact is that getting approved for a loan needs a lot of persistence.

4 Tips to Save Money to Keep Debt Threat at Bay

Paying off debt is a mammoth task regardless of their terms. Even though you whittle down your expenses, you find it extremely difficult to reimburse all of your dues on time and eventually you end up with a painful circle of debts.

long term loans with no guarantor

Experienced borrowers know that it is comparatively very easy to get a loan in which a guarantor is involved. Moreover, the good credit history of the guarantor makes it easy for the direct lender to approve the loan because of the guaranteed security that the co-signer brings to the table during the loan deal.

No guarantor loans

Borrowing has become a part of life these days. Of course, the reason behind this is, the cost of living goes high by each passing year. Living paycheque to paycheque seems the trickier task of the life.

No guarantor loans

Financial decisions are difficult to take. From savings to investment, you need to be on your toes, as nothing regretful should happen. There may be no second chance and then the loss becomes your destined destiny. However, with a cautious mind, it is also possible to get your desired results.